Question 1

For the following items that require reconciliation between governmental funds financial statements and governmental activities financial statements at the government-wide level according to GASB standards, indicate which is the best appropriate terms.
(A) Always be subtracted from fund balances-governmental funds.
(B) Always be added to fund balances-governmental funds.
(C) May be added to or subtracted from fund balances-governmental funds in arriving at net position of governmental activities.
________ 1. Capital assets used in governmental activities
________ 2. Long-term liabilities that are not payable in the current period
________ 3. Net position of internal service funds that are primarily governmental in nature
________ 4. Accrued interest payable not due in the current period

Accepted Answer

The answer of For the following items that require reconciliation...

Question 2

Which of the following statements concerning the reporting of expenses on the statement of activities is True?
A) Expenses are reported after program revenues.
B) Expenses are reported after general revenues.
C) Expenses are reported after program and general revenues.
D) Expenses are reported before program and general revenues.

Accepted Answer

The answer of Which of the following statements concerning the...

Question 3

For each of the following definitions, indicate the key term from the list that best matches by placing the appropriate terms.
A. Component unit
B. Financial reporting entity
C. Financial accountability
D. Joint venture
E. Other stand-alone government
F. Primary government
________ 1. A separate government or agency that is combined for purposes of reporting on the whole entity
________ 2. The responsibility that exists when a primary government appoints a voting majority of an organization's governing board and it is able to (a) impose its will on the organization or (b) there is a potential for the organization to provide financial benefits or impose a financial burden on the primary government
________ 3. A state government, general purpose local government, or special purpose government that is independent of other state or local governments
________ 4. A legally separate governmental organization that does not have a separately elected government body
________ 5. Primary government and all related component units

Accepted Answer

The answer of For each of the following definitions, indicate...

Question 4

Which of the following items are typically reported differently between the governmental fund statements and the Governmental Activities column of the government-wide statements?
A) Capital outlays.
B) Cash collected on property taxes receivable.
C) Accounts payable and other accrued expenses.
D) Inventories.

Accepted Answer

Governmental fund statements use the modified accrual basis, which reports capital outlays as expenditures. In contrast, the government-wide statements use the accrual basis, where capital outlays are capitalized as assets and depreciated over time.

Question 5

Which of the following statements concerning the reporting of internal balances by a government at the end of its fiscal year is True?
A) The internal balances amounts reported in the balance sheet columns represent activity among governmental funds.
B) The internal balances amounts reported in the statement of net position columns represent activity between governmental activities and business-type activities.
C) The internal balances amounts are reported in both the asset and liability sections on the statement of net position.
D) The internal balances amounts reported represent the difference between interfund transfers in and interfund transfers out.

Accepted Answer

Internal balances in the statement of net position represent activity between governmental activities and business-type activities, reflecting amounts due between these two types of activities.

Question 6

On the statement of revenues, expenditures, and changes in fund balance for governmental funds, how are capital outlays reported?
A) As a separate line item in the expenditures section of the statement.
B) Capital outlays are allocated to the functional areas, much like depreciation.
C) As a separate line item in the other financing sources (uses) section of the statement.
D) Below net change in fund balances, but before beginning fund balance.

Accepted Answer

Capital outlays are reported as a separate line item in the expenditures section of the statement of revenues, expenditures, and changes in fund balance for governmental funds. This allows for clear identification of the amount spent on capital assets during the period.

Question 7

Balsam City's library board is appointed by the city council, which has agreed to subsidize the operating costs of the library at a material amount to be determined each year. In addition, the city is paying debt service on general obligation bonds issued to construct the library. Based on generally accepted accounting principles (GAAP) criteria for defining the reporting entity:
A) The library is a component unit.
B) The library is a special purpose government.
C) The library is a joint venture.
D) The library is a jointly governed organization.

Accepted Answer

The library is a component unit because it is financially accountable to the city and is included in the city's financial statements. The city subsidizes its operating costs and is paying debt service on bonds issued to construct the library, indicating that the city has significant financial control over the library. As a component unit, the library's financial statements are included in the city's financial statements as a discretely presented component.

Question 8

Under GASB standards, where are nonmajor funds reported?
A) In the management's discussion and analysis preceding the financial statements.
B) In aggregate amounts in a single column in the fund financial statements.
C) In a note disclosure following the financial statements.
D) In the government-wide financial statements.

Accepted Answer

Nonmajor funds are reported in aggregate amounts in a single column in the fund financial statements, as per GASB standards.

Question 9

Some governments provide to their citizens highly condensed financial information, budget summaries, and narrative descriptions. This report is called a(an)
A) Comprehensive annual financial report.
B) Basic financial statements.
C) Required supplementary information.
D) Popular report.

Accepted Answer

The report described in the question is commonly known as a "popular report," which is designed to provide easy-to-understand financial information to citizens. The other answer choices refer to more detailed financial reports typically used by government entities for internal purposes or to comply with legal requirements.

Question 10

Where should infrastructure assets and long-term liabilities issued to finance infrastructure be reported?
A) Letter of transmittal.
B) Fund financial statements.
C) Management's discussion and analysis.
D) Government-wide financial statements.

Accepted Answer

Infrastructure assets and long-term liabilities issued to finance infrastructure should be reported in the government-wide financial statements, as mandated by GASB 34. This statement provides information on the overall financial position and activities of the government, including infrastructure assets and liabilities. The fund financial statements, management's discussion and analysis, and letter of transmittal provide more specific information on specific funds or aspects of the government's operations, but the government-wide financial statements give a more comprehensive picture.

Question 11

The comprehensive annual financial report (CAFR) of a government should contain a statement of revenues, expenses, and changes in net position for:
A) Both proprietary and governmental funds.
B) Governmental but not proprietary funds.
C) Proprietary but not governmental funds.
D) Both proprietary and fiduciary funds.

Accepted Answer

The statement of revenues, expenses, and changes in net position is specific to proprietary funds, which operate similarly to private sector businesses, and thus report their financial activities in this manner. Governmental funds use different reporting formats, focusing on sources and uses of financial resources.

Question 12

In reconciling the net change in fund balances to the change in net position of governmental activities which of the following would be added to the change in net position of governmental activities?
A) Issuance of long-term debt.
B) Construction of capital assets.
C) Accrual of interest expense.
D) Depreciation expense.

Accepted Answer

Construction of capital assets is added to the change in net position of governmental activities because it represents an increase in capital assets, which is a positive adjustment when reconciling fund balances to the government-wide financial statements.

Question 13

Which of the following statements concerning interfund transfers is True?
A) Interfund transfers are reported in the statement of revenues, expenditures, and changes in fund balance when transfers occur among governmental funds.
B) Interfund transfers are reported in the statement of activities when transfers occur among governmental funds.
C) Interfund transfers are reported in the statement of revenues, expenditures, and changes in fund balance and the statement of activities when transfers occur among governmental funds.
D) Interfund transfers are reported as internal balances on the statement of net position when activity occurs among governmental activities and business-type activities.

Accepted Answer

Interfund transfers are reported in the statement of revenues, expenditures, and changes in fund balance when transfers occur among governmental funds. These transfers are made between funds within the same governmental entity and are not considered revenue or expenditure transactions. Instead, they are reported as additions or deductions to fund balances.

Question 14

GASB standards require that governmental fund financial statements include which of the following?
A) Balance sheet.
B) Statement of activities.
C) Statement of cash flows.
D) Both Balance sheet and Statement of activities.

Accepted Answer

GASB (Governmental Accounting Standards Board) standards require that governmental fund financial statements include a balance sheet. The statement of activities is required for government-wide financial statements, not fund financial statements, and the statement of cash flows is associated with proprietary funds, not governmental funds.

Question 15

Which of the following asset amounts would be classified as restricted fund balance on the governmental funds balance sheet?
A) Cash related to a federal grant for the Public Works department.
B) Supplies inventory in the General Fund.
C) Cash in the debt service fund that the city has set aside to pay a long-term note.
D) A cash contribution that must be maintained in perpetuity.

Accepted Answer

Cash related to a federal grant for the Public Works department is classified as a restricted fund balance because it is subject to externally enforceable legal restrictions.

Question 16

Which of the following would decrease the governmental activities balance in Net Position-Net Investment in Capital Assets?
A) An increase in accumulated depreciation.
B) Acquisition of a capital lease.
C) Sale of a fully depreciated capital asset.
D) Receipt of a capital grant that has not been expended at fiscal year-end.

Accepted Answer

An increase in accumulated depreciation reduces the net book value of capital assets, thereby decreasing the Net Investment in Capital Assets.

Question 17

Which of the following are government-wide financial statements required by GASB standards?
A) Statement of net position and statement of cash flows.
B) Statement of net position, statement of activities, and statement of cash flows.
C) Statement of net position and statement of activities.
D) Statement of activities and statement of cash flows.

Accepted Answer

The Governmental Accounting Standards Board (GASB) requires two primary government-wide financial statements: the Statement of Net Position and the Statement of Activities. These statements provide a broad overview of a government's finances.

Question 18

In reconciling the total fund balances of the governmental funds to the net position of governmental activities, which of the following would be added to the net position of governmental activities?
A) Accumulated depreciation.
B) Premium on bonds payable.
C) Construction work in progress.
D) Bond interest payable.

Accepted Answer

Construction work in progress is a capital asset that is not reported in the governmental funds but is included in the government-wide financial statements. Therefore, it would be added to the net position of governmental activities in the reconciliation process.

Question 19

"Interim financial reports are needed for state and local governments even though external users of financial reports have no need to assess monthly or quarterly performance of the government." Do you agree? Why or why not?

Accepted Answer

The answer of "Interim financial reports are needed for state...

Question 20

The following transactions relate to the City of Middleton, which has a fiscal year end of December 31. The city adopts budgets for the General Fund and the debt service fund. NOTE: for simplicity, and contrary to GASB standards, assume straight-line amortization for this problem.
1. The City of Middleton sells a $2,000,000, 3%, 16-year general obligation bond issue on January 2 at par. The bond pays interest semiannually on July 1 and January 2, with the first principal payment scheduled for next year on January 2. A city hall annex must be constructed with the bond proceeds. The bond premium must be used to pay interest on the debt.
2. Budgets are adjusted to account for the sale of the bond. The debt service fund budget should be adjusted to accommodate the new debt issue. If the debt service fund does not have sufficient resources to pay expenditures, the needed funds will be provided by the General Fund.
3. On February 1, $1,000,000 of the cash from the sale of the bonds is invested for one year at a rate of 1.26%. Earnings on the investment are available for construction of the city hall annex.
4. July 1 the first interest payment is due.
5. December 31 adjusting entries are prepared.
Required:
For the five related transactions provided, prepare all necessary journal entries for the affected funds and at the governmental activities level. Clearly indicate the fund journal or the government-wide journal in which the entry is being recorded. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Accepted Answer

The answer of The following transactions relate to the City...

Quiz 9: Financial Reporting of State and Local Governments

Which of the following statements concerning the reporting of expenses on the statement of activities is True?

Which of the following items are typically reported differently between the governmental fund statements and the Governmental Activities column of the government-wide statements?

Which of the following statements concerning the reporting of internal balances by a government at the end of its fiscal year is True?

On the statement of revenues, expenditures, and changes in fund balance for governmental funds, how are capital outlays reported?

Under GASB standards, where are nonmajor funds reported?

Some governments provide to their citizens highly condensed financial information, budget summaries, and narrative descriptions. This report is called a(an)

Where should infrastructure assets and long-term liabilities issued to finance infrastructure be reported?

The comprehensive annual financial report (CAFR) of a government should contain a statement of revenues, expenses, and changes in net position for:

In reconciling the net change in fund balances to the change in net position of governmental activities which of the following would be added to the change in net position of governmental activities?

Which of the following statements concerning interfund transfers is True?

GASB standards require that governmental fund financial statements include which of the following?

Which of the following asset amounts would be classified as restricted fund balance on the governmental funds balance sheet?

Which of the following would decrease the governmental activities balance in Net Position-Net Investment in Capital Assets?

Which of the following are government-wide financial statements required by GASB standards?

In reconciling the total fund balances of the governmental funds to the net position of governmental activities, which of the following would be added to the net position of governmental activities?

"Interim financial reports are needed for state and local governments even though external users of financial reports have no need to assess monthly or quarterly performance of the government." Do you agree? Why or why not?